German Court Rules Tax on Speculation Gains Is Unconstitutional

The court said it had referred the case to the Federal Constitutional Court in Karlsruhe but meanwhile ruled in favor of a case brought by tax expert Klaus Tipke. In its opinion, the court said the finance authorities' inability to investigate the gains suggested that the tax could indeed be unconstitutional because it prevented equal treatment of all forms of income.

Tipke had argued that those who honestly filled out their tax returns had to pay the tax, but many did not do so and escaped the tax as the Finance Ministry was incapable of checking their gains from share deals.

Germany has taxed speculative gains of up to 512 euro for many years. The present government redefined what constituted a speculative transaction in 1999, when it applied the tax to the gains on shares sold within a year of their purchase. Before that, the tax applied only to sales carried out within six months of the shares’ purchase.

The chairwoman of the parliamentary finance committee, Christine Scheel, a member of junior government coalition party, the Greens, responded to the court ruling by calling for harsher taxation of private share gains. She argued in favor of abolishing the speculation period altogether and said that to enable the finance authorities to gather comprehensive information, banks should provide them with annual account statements.

The Finance Ministry on Thursday said it saw no reason for a further change in the law. But the deputy parliamentary party chief of the governing Social Democrats, Joachim Poß, agreed with Scheel. If the authorities really lacked the resources to provide equal treatment in their investigations the “whole issue of taxation on capital gains and bank secrecy” would have to be rexamined, he argued.